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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
order should be set aside to the made afresh. In response to the same, Assessee’s AR attended the proceedings on 16.2.2015 and filed reply contesting the proposed action u/s. 263 primarily on the ground that the assessment u/s. 143(3) is not liable to be cancelled u/s. 263 because the same has been framed by the AO after due application of mind and also that no prejudice has been caused to the revenue. After considering the reply filed by the Assessee- Society, the Ld. Commissioner of Income Tax(E) has passed the impugned order u/s. 263 of the I.T. Act dated 27.3.2015 by holding the assessment order dated 7.3.2013 passed u/s. 143(3) of the Act is erroneous and prejudicial to the interest of revenue by citing the decision of the Hon’ble Karnataka High Court in the case of Infosys Technologies Ltd. reported in 341 ITR 293 (Kar.). Thereafter, Ld. CIT(E) set aside the assessment with the directions to the AO to examine the issue in details in view of the Memorandum of Association and Dissolution clause.
Against the above order of the Ld. CIT(E) dated 27.3.2015 passed u/s. 263 of the I.T. Act, the assessee appealed before the Tribunal.
At the time of hearing, Ld. Counsel of the assessee draw our attention towards the Paper Book containing pages 1 to 203 in which he has attached various types of documentary evidences. He further draw our attention towards the Show Cause Notice dated 27.1.2015 issued u/s. 263 of the I.T. Act by the Ld. CIT(E) which is at Page No. 53-54 of the PB. He draw our attention towards page no. 16 to 19 which are the income tax returns. He stated that the assessee has disclosed about the mutuality and notice has been issued because of change of opinion, which is not permissible under the law. He further stated that AO has made the full and detailed enquiry, as per order sheets. AO has asked about the principle of mutuality for which the Assessee has given the explanation/ submissions at page No. 84 to 86 of the PB and also cited the decision of the Hon’ble Delhi High Court decisions i.e. CIT vs. SCOPE 319 ITR 179 (Delhi) and Hon’ble Supreme Court of India decision in the case of Bankipur Club Ltd. 226 ITR 97 (SC), which are at pages 86 to 89 of the PB, favouring the assessee’s case. He further stated that the AO has discussed the claim of mutuality vide para no. 7 in his order at page no. 12 to 16 and observed that assessee seems to be covered by the principal of mutuality and therefore, is entitled to exemption only in respect of income accruing from the members in terms of the principles of mutuality.
Ld. Counsel of the assessee stated that it cannot be said that the AO has not applied his mind. Even on merits the case of the assessee is also in favour of the assessee as per the submissions made at Page No. 57 to 72 of the Paper Book in which each and every aspect on the principle of mutuality has been explained. Lastly, Ld. Counsel of the Assessee stated that exactly the similar issue has been adjudicated and decided by the ITAT, ‘C’ Bench in assessee’s own case for the assessment year 2009-10 passed in (AY 2009-10), copy thereof is attached at Page No. 39 to 52 of the PB. In view of the above, he stated that keeping in view of the written submissions as well as the documentary evidence filed by him and the precedent, the impugned order may be cancelled and the Appeal filed by the Assesee may be allowed.
On the contrary, Ld. CIT(DR) relied upon the impugned order of the Ld. Commissioner of Income Tax (Exemptions) dated 27.3.2015 and stated that there are various points which has been considered by the ITAT in its order, relevant for the assessment year 2009-10. Therefore, the impugned order has been passed as
per law. She further stated that the AO has passed the assessment order without applying his mind and without making detailed enquiry. However, the Ld. CIT(E) has rightly applied his mind and passed the order under section 263 of the I.T. Act. In support of her contention, she filed a small Paper Book containing 1 to 20 having the copy of the order of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del); Copy of order of the Hon’ble Delhi High Court in the case of Duggal & Co. 220 ITR 456 (Delhi); Order of the Hon’ble Supreme Court of India in the case of Malabar Industries Co. Ltd. 243 ITR 83 (SC) and the order of the ACIT(E), Circle 1(1), New Delhi u/s. 143(3)/263 dated 30.3.2016.
She requested that the impugned order of the Ld. CIT(E) may be upheld and Appeal of the Assessee may be dismissed accordingly.
We have heard both the parties and perused the records available with us, especially the order passed by the Revenue Authority alongwith the documentary evidence and the case law filed by the assessee’s counsel as well as the provisions of law referred by the Revenue Authority and the Ld. Counsel of the assessee. He stated that the order passed by the AO is not erroneous at all, because the AO has considered the applicability of ‘principle of mutuality’ in his order dated 07.3.2013 passed under section 143(3) of the I.T. Act. We have also perused the Pages 12 to 16 of the Paper Book especially the para 7 of the assessment order as well as the detailed submissions filed by the Assessee during the assessment proceedings with regard to applicability of ‘principle of mutuality’ which is placed at pages 55-72 of the Paper Book. After thoroughly examined the aforesaid documentary evidences, produced by the assessee in the shape of Paper Book and the case law cited in assessee’s own case for the assessment year 2009-10, before us, we are of the considered view that the arguments advanced by the Ld. Counsel of the assessee is very much plausible and convincing, because the claim of the assessee regarding the applicability of ‘principle of mutuality’ in its return of income has been filed by the assessee alongwith the return of statement of account, meaning thereby the assessee has claimed the applicability of ‘principle of mutuality’ in its return of income.
The AO during the course of assessment proceedings has also directed the assessee to explain the applicability of ‘principle of mutuality’ which we have seen at the assessment proceedings thereby the issue of ‘principle of mutuality’ has been discussed and detailed enquiry has been done at the level of the AO and assessee also filed its details before the AO in the assessment proceedings with regard to the applicability of ‘principle of mutuality’. After perusing the assessment order dated 07.3.2013 passed u/s. 143(3) of the I.T. Act, we have seen that AO has rightly considered the applicability of ‘principle of mutuality’ in the assessment order especially the para 7 of the assessment order.
8.1 We also find force in the Ld. Counsel of the Assessee’s submissions that exactly the similar issue has been adjudicated and decided by the ITAT, ‘C’ Bench in assessee’s own case for the assessment year 2009-10 passed in (AY 2009-10), vide order dated 12.2.2015 has decided the similar and identical issue relating to ‘principle of mutuality’ in favour of the assessee. In view of the above, he stated that keeping in view of the written submissions as well as the documentary evidence and the case law cited by the Ld. Counsel of the Assessee, the impugned order may be cancelled and the Appeal filed by the Assesee may be allowed.
8.2 Keeping in view of the aforesaid discussions alongwith the documentary evidences filed by the assessee as discussed above in the arguments of the Ld. Counsel for the assessee and the assessment order alongwith the impugned order, we are of the view that the AO has made the detailed enquiries on the issue of ‘principle of mutuality’ and passed the order dated 07.3.2013 u/s. 143(3) of the I.T. Act as per law.
8.3 We find that the Hon’ble Supreme Court in the case of CIT vs. Green World Corporation 314 ITR 81 (SC) has held as under:-
“The jurisdiction u/s. 263 can be exercised only when both the following conditions are satisfied: i) The order of the AO should be erroneous; and ii) It should be prejudicial to the Revenue interest. These conditions are conjunctive. An order of assessment passed by the AO should not be interfered with only because another view is possible.”
An order would be erroneous only when the AO makes no enquiries during the course of assessment proceedings. This principle was noticed by the Delhi High Court in Geevee Enterprises vs. Addl. CIT 99 ITR 375 (Del.). In arriving at this decision, the Delhi High Court drew strength from the principles laid down by the Supreme Court in Rampyari Devi Sarogi vs. CIT 67 ITR 84 (SC) and Tara Devi Agarwal vs. CIT, 88 ITR 324 (SC). The underlying principle which emerges from these judgments is that if an assessment order is passed without making any enquiries, then such an order would be erroneous.
8.4 We also find that the AO has consciously taken a view with regard to the “Principle of Mutuality”. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) held as under:-
“The phrase “prejudicial to the interest of the Revenue” has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer, adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible in law and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law.”
8.5 We also find that the case laws cited by the Ld. CIT(DR) does not support the case of the Revenue.
8.6 In the background of the aforesaid discussions and respectfully following the aforesaid precedents, we are of the considered view 13 that the assessment order dated 07.3.2013 passed u/s.143(3) is not erroneous and prejudicial to the interest of revenue at all and the Ld. CIT(E) has passed the impugned order dated 27.3.2015, is contrary to the law and facts on record, which is not sustainable in the eyes of law. Hence, we cancel the impugned order dated 27.3.2015 passed by the Ld. CIT(E) u/s. 263 of the I.T. Act by accepting the appeal filed by the assessee and upheld the assessment order dated 7.3.2015 passed by the AO passed u/s. 143(3) of the I.T. Act. Our view is supported by the Ram Piari Devi Sarogi vs. CIT 67 ITR 8 4 (SC) and Tara Devi Agarwal vs. CIT 88 ITR 323 (SC).
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 18/5/2016.